Investing.com– South Korea’s central bank unexpectedly kept interest rates unchanged on Thursday amid heightened political uncertainty in the country after the recent arrest of impeached President Yung Suk Yeol.
The Bank of Korea left its benchmark rate at 3%, compared to expectations that it would cut the rate to 2.75%.
The central bank had cut interest rates twice in 2024, as it kicked off an easing cycle to help support economic growth. Consistently softer inflation in the country sparked expectations of more rate cuts.
But these expectations were dented by heightened political uncertainty in the country, after President Yoon attempted to unsuccessfully implement military law in December.
Yoon was impeached, and was arrested at the Presidential compound on Wednesday.
Investors had also expected more easing by the BOK to help offset the impact of increased political uncertainty, especially after South Korean stocks and the won were battered over the past month. The won in particular slumped to its weakest level in 15 years.
Analysts said that the central bank was likely to cut rates soon, amid increasing signs of economic pressure from the ongoing political crisis. The BOK’s latest easing cycle was triggered largely by signs of weaker economic growth, high household debt and slowing inflation.
“There are good reasons to expect the central bank to resume its easing cycle soon amid signs the political crisis is weighing on the economy. But even if the crisis is resolved soon, GDP growth is expected to struggle,” analysts at Capital Economics wrote in a note.
Focus is now on an upcoming press conference by BOK Governor Rhee Chang-Yong for more cues on policy.
